The present invention relates to electronic trading systems, and, more particularly, to a system and method which acts as an introducing broker to arrange electronic trades in financial instruments.
Alternative trading systems are being implemented with capabilities beyond the traditional exchanges for commodities, stocks, and financial instruments. For example, electronic trading systems can perform trade-matching between buyers and sellers, which increases the communications and liquidity of capital for greater market efficiencies.
In the financial arts, electronic communications networks (ECNs) refer to computerized trade-matching systems which are capable of uniting the best bid and offer prices, as well as providing investors with anonymity and reduced transaction costs. For example, such ECNs may bypass broker-dealer commissions as well as exchange fees. An ECN allows its participants such as brokers/dealers, market makers, and buy-side institutions to post bids and offers into a market quote, such as the “NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS” (NASDAQ) system.
Order handling rules have been implemented by the Securities and Exchange Commission (SEC), which mandate disclosure by market makers of any ECN order in a trade quote at the time of the trade. The lack of anonymity may expose, for example, excessive trades by specific institutions and companies which may, in turn, have a negative impact on the markets, such as causing runs in stocks and wild and volatile swings in markets. Accordingly, such exposure may chill trading by market makers of ECN orders, and so reduces liquidity and efficiency in trading systems.
A need exists for an anonymous trading system which complies with applicable market disclosure rules.
Trading systems also support messaging and displayed information as indications of interest (IOI) of an entity willing to enter into a trade and soliciting opposite parties or contras in a trade. Anonymous indications increase trading liquidity. However, on occasion brokers use IOIs, and especially anonymous IOIs, to perform fishing; that is, to send empty or insincere IOIs to solicit half of a transaction, and then to seek to fill the other half.
A need exists for a trading system which promotes IOIs and their benefits but which discourages fishing IOIs.